How to Value Self-Storage

by Bryan Keythman

A self-storage property’s value depends largely on the income it generates. With all other factors being equal, investors and potential buyers will put a higher price tag on a self-storage property that generates higher income. Whether you’re looking to invest, buy or sell, figuring a property’s value lets you know approximately what other investors are willing to pay for it.

Determine the self-storage property’s net operating income -- its annual rental income minus its annual operating expenses. If you are valuing a property for sale, the property’s listing will show its NOI. For example, if a self-storage property’s annual rental income is $750,000 and its annual operating expenses are $250,000, its NOI would be $500,000.

Determine the capitalization rates, or cap rates, of several self-storage properties that have recently sold in the same area as the subject property. A cap rate measures NOI as a percentage of a property’s sale price. Similar properties sell for similar cap rates in the same area. You can get cap rates from a local commercial real estate broker or from companies that specialize in commercial real estate market data. The more cap rates you can find, the better. In this example, assume cap rates of 7.0 percent, 6.5 percent and 6.8 percent for three recently sold self-storage properties.

Add the cap rates and divide the result by the number of cap rates to determine the average cap rate for which self-storage properties have recently sold in the area. Continuing with the example, add 7.0 percent, 6.5 percent and 6.8 percent to get 20.3 percent. Divide 20.3 by 3 to get a 6.8 percent average cap rate.

Divide the NOI by the average cap rate and multiply the result by 100 to determine the self-storage property’s value. Continuing with the example, divide $500,000 by 6.8 percent, or 0.068. Multiply the result -- 735294.117647059 -- by 100, to get a value of approximately $7.4 million. This is the value for which the self-storage property might sell in the current market.